Member Articles

Warming Up to IBM, Walmart Disappoints Again

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Most of us woke up to the news February 18 that Apple (AAPL) would be vigorously defending the privacy of its customers against a potential “overreaching” by the Federal Bureau of Investigation and/or others. The crux of the matter is whether Apple should unlock a phone that had been used by a shooter in the San Bernardino attacks early December, per the request of the FBI, as doing so may eventually jeopardize the personal safety and security of all Americans. Several tech CEOs have come out to support Apple, but any outcome on the matter will be difficult to predict. In a day and age where privacy is a major hot-button issue, CEO Tim Cook knows he needs to step … Read more

Netflix Shareholders Need to Get Real?

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By Brian Nelson, CFA “Netflix is valued as if it will have the economics of three US operations, without having to pay at all for the next two…” We have no problems with investors playing with “fire” if they know that they are and don’t mind losing their shirts, but we posit that, given the popularity of the acronym, FANG, which stands for Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google, now Alphabet (GOOG, GOOGL), many unsuspecting investors have been lured into Netflix believing these four companies share similar qualities. They absolutely 100% do not. On one hand, Facebook, Amazon, and Alphabet have incredibly strong balance sheets and generate copious amounts of free cash flow, as measured by cash flow … Read more

Alerts! Adding to PCLN & CSCO on Strength; Initiating KMI

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Good morning. We were met February 17 with some fantastic news from Best Ideas Newsletter portfolio holding Priceline (PCLN), which is trading up over 10% at the time of this writing, to $1,230 per share, following a fourth-quarter earnings beat, where it exceeded the bottom line consensus estimate by more than $0.80 per share. Though recent unfortunate news regarding terrorist activity across the globe has given pause to sentiment with respect to travel-oriented stocks, the collapse in crude oil prices and distillates (jet fuel) may be stimulating incremental demand in light of the reduced cost of vacationing. We’ll be roughly doubling our position in the Best Ideas Newsletter portfolio at the prevailing price, to a 3.5% weighting. Priceline’s bookings growth … Read more

We Like the News! Buffett Scoops Up Kinder Morgan; FVE: $20

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It looks like crude oil (USO) overproduction will continue. Dashing hopes that any rational behavior would prevail in the energy resource markets, member nations of OPEC February 16 said not that they would cut output but that they would not increase crude-oil output any further, as if the current pace of production isn’t already drowning the world in the black liquid. It turns out the rumor from last week had some basis to it, “Your Hard-Earned Money,” but it didn’t have much substance, in our view, especially since the deal hinges on cooperation from Iran, which remains dedicated to increased production to reach pre-sanction levels. We’re not reading much into the news, as Saudi Arabia, while included in the parties … Read more

Alert: 5 Reasons Why We Think Netflix’s Shares Will Collapse

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Pictured: The “black space” a Netflix user encounters after searching for movies that include one of Hollywood’s biggest superstars, Jennifer Lawrence. By Brian Nelson, CFA Netflix’s (NFLX) shares are considerably vulnerable. The content distributor’s business model is in jeopardy in light of rising cash content costs amid a subpar product offering, and we don’t believe there is an easy answer to its woes — either ever-higher cash streaming content costs will obliterate equity value over the long haul despite member growth, or a cut in such necessary cash content obligations will hurt its streaming product assortment and therefore member growth and subscriber retention. We’re pointing investors to the low end of the fair value estimate range for shares, the low-$60s, but we believe there may be further downside … Read more

Your Hard-Earned Money

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By Brian Nelson, CFA It was Thursday afternoon, February 11, crude oil prices just hit a 13-year low, and the S&P 500 (SPY) was about to break below key technical support. Then, just as the markets were to fall further, rumors again emerged that OPEC may be scheduling a meeting to curb crude oil output, driving crude oil prices from the depths and the market higher off technical support. A barrel of crude oil continues to trade below the $30 mark, but it was quite the “save.” From where we stand, the market hasn’t been this fragile than at any time during the past decade or so, including during much of the Financial Crisis. Optimists may be whistling past the … Read more

Falling Knives among Internet-Based Equities

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Image Source: Spencer E Holtaway By Kris Rosemann The firestorm among Internet equities didn’t stop with LinkedIn’s (LNKD) fourth-quarter catastrophe, “Three Blow Ups after the Close February 4.” Twitter (TWTR), Zynga (ZNGA), Zillow (Z, ZG), and Pandora (P) also remain challenged. We’ve never liked Twitter, and we don’t think we ever will, “Twitter’s Valuation Enigma (Feb 2015)”  The company’s investment opportunity-to-news ratio is practically nil, in our view, but that won’t stop investors from talking about it, and we do so, if only to explain why the firm is but a lotto ticket, not likely to pay off. Twitter recently turned free cash flow positive in 2015, but most of the cash flow boost came from non-cash stock-based compensation, a tangible … Read more

More Market Weakness: We Haven’t Hit Bottom Yet

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Global equity markets are falling yet again February 11, in part due to cautious comments from US Federal Reserve chair Janet Yellen about the health of the global economy and the legality/efficaciousness of negative interest rates, “Dividend Growth ‘Bubble’ To Continue But For How Long? (Feb 2016).” Market onlookers continue to fear that the Fed has nothing left to give, “out of ammunition,” with the tank of accommodative policy empty, and it might just be. To us, however, the news flow is more of the same. The world continues to be awash in crude oil (USO), and many are now starting to think that what was once mostly an oversupply problem is now being compounded by a demand problem as … Read more

Cisco Hikes Payout 24%! Realty Income’s Dividend Coverage Solid

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By Kris Rosemann Two resilient dividend payers that reside in the newsletter portfolios, Cisco (CSCO) and Realty Income (O), reported quarterly results February 10. We were mighty pleased. Networking giant Cisco, a ~1.5% weighting in both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, is a free-cash-flow generating machine. Concurrent with its fiscal second-quarter release, the company announced a remarkable 24% increase in its quarterly dividend to $0.26 per share (good now for a 4.5% forward yield), a pace of growth roughly on par with its impressive ~27% increase in its free cash flow through the first six months of fiscal year 2016. Cisco also added $15 billion to its buyback program, and management remains committed to returning … Read more

Solar Not So Bright

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We continue to believe the solar industry is “uninvestable.” You don’t have to look much further than the write-up in any solar industry constituent’s 16-page report to get our straightforward opinion: The solar industry is extremely competitive and continually evolving as constituents strive to differentiate themselves to better compete within the broader electric power industry. Significant price reductions (per watt), reduced margins, and drastic market share shifts have become commonplace for participants. Profitability can be negatively impacted from government subsidies and sovereign capital that allow firms to operate unprofitably for extended periods of time. Production overcapacity is another major concern and will likely persist for some time. We think the structure of the solar industry is very poor. After the … Read more